Great write up. I am completely put off by the debt here though. 1.71 B debt to 104m trailing fcf. The future of the company, there ability to return cash to shareholders is going to be very dependent on interest rates.
Thanks Tom. I agree, the debt is by far the biggest negative. If the business were more responsibly levered, it would be a much easier situation to get comfortable with. I don't think the business will have much trouble gradually paying down and rolling the debt over as it comes due given the nature of the business, but it still greatly decreases flexibility and limits shareholder yield going forward.
They have 29 million of debt that matures this year and the same amount again next year. But in 2026 they have 289 million and 2027 516 million maturing. The interest rate of thisbdebt is all pretty low. It's quite easy to imagine a situation where when the debt is rolled out er than all their FCF is required just to pay off interest expense.
My pretty uninformed 2 cents, based mostly off the contents of this post: A dangerous build-up of debt funding unreasonable share repurchases and large acquisitions with minimal strategic value ($15m in synergies is not sufficient for a $600m acquisition) screams financial mismanagement, empire-building, and overall poor leadership.
My experience with reasonably cheap looking companies with heavy debt loads has not been positive. In my eyes, this is not cheap enough to justify the risk as a cigar butt, and the brands and finances are not strong enough to justify it being a quality pick (a 5 year payback period is not good).
I like to pick investments where I'm likely to do very well, whether the market recognises I'm right anytime soon or not. I don't think that's the case here. The underlying business is not fast-growing, the book value is negative, the balance sheet risk is substantial. If the market wants to keep it <10x earnings for the next decade, your return will be fairly dismal.
Matt - I think you are broadly right. As I mentioned in the article the debt is irresponsible at current levels, if the leverage was more reasonable it would be a much different proposition.
Great write up. I am completely put off by the debt here though. 1.71 B debt to 104m trailing fcf. The future of the company, there ability to return cash to shareholders is going to be very dependent on interest rates.
Thanks Tom. I agree, the debt is by far the biggest negative. If the business were more responsibly levered, it would be a much easier situation to get comfortable with. I don't think the business will have much trouble gradually paying down and rolling the debt over as it comes due given the nature of the business, but it still greatly decreases flexibility and limits shareholder yield going forward.
Same. And it’s worrying that they say this leverage profile is right for the business.
Agree.
They have 29 million of debt that matures this year and the same amount again next year. But in 2026 they have 289 million and 2027 516 million maturing. The interest rate of thisbdebt is all pretty low. It's quite easy to imagine a situation where when the debt is rolled out er than all their FCF is required just to pay off interest expense.
My pretty uninformed 2 cents, based mostly off the contents of this post: A dangerous build-up of debt funding unreasonable share repurchases and large acquisitions with minimal strategic value ($15m in synergies is not sufficient for a $600m acquisition) screams financial mismanagement, empire-building, and overall poor leadership.
My experience with reasonably cheap looking companies with heavy debt loads has not been positive. In my eyes, this is not cheap enough to justify the risk as a cigar butt, and the brands and finances are not strong enough to justify it being a quality pick (a 5 year payback period is not good).
I like to pick investments where I'm likely to do very well, whether the market recognises I'm right anytime soon or not. I don't think that's the case here. The underlying business is not fast-growing, the book value is negative, the balance sheet risk is substantial. If the market wants to keep it <10x earnings for the next decade, your return will be fairly dismal.
Matt - I think you are broadly right. As I mentioned in the article the debt is irresponsible at current levels, if the leverage was more reasonable it would be a much different proposition.
Do you think the stock is attractive or was the post just a neutral informational type thing?